The Reserve Bank of India (RBI) has introduced a series of measures aimed at attracting foreign investment and improving liquidity in light of the recent depreciation of the Indian rupee. This initiative follows increased pressures from rising crude oil prices and significant foreign investor withdrawals, which have contributed to the rupee hitting unprecedented lows against the US dollar. The central bank’s announcement, made on Friday, reflects its commitment to stabilising the currency amidst a challenging economic landscape.

According to RBI Governor Sanjay Malhotra, the bank is implementing both temporary and structural measures that will enhance the availability of foreign exchange and facilitate improved access to Indian debt markets for overseas investors. The decision to keep the repo rate unchanged at 5.25% is part of a broader strategy to strengthen foreign financial inflows.

Enhancements to Government Securities

One of the key actions undertaken by the RBI is the inclusion of newly issued 15-year, 30-year, and 40-year government securities under the Fully Accessible Route (FAR) for foreign investors. The FAR framework enables overseas investors to participate in these securities without the imposition of investment caps, thereby making Indian bonds more attractive on the global stage.

The RBI is also set to remove investment limits on other government securities, further liberalising the sovereign bond market for foreign capital. These measures are anticipated to help position India as a viable destination for long-term overseas investments in its debt market.

Additionally, the central bank affirmed that including such securities under major global bond indexes will enhance their appeal for international investors. This strategy aims to foster greater trust and participation in India’s bond markets.

Increased Access for NRIs and OCIs

The RBI’s efforts also extend to Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). Investment limits for these groups have been expanded, allowing greater involvement by individuals residing outside India in domestic financial markets. This approach is expected to harness the potential of the Indian diaspora and augment the flow of foreign capital into the economy.

Furthermore, the RBI has introduced a concessional foreign exchange swap facility to facilitate the inflow of foreign currency into the country. This facility is set to remain operational until September 30 and aims to make the conversion of dollars into rupees more economical for banks and market participants, thereby bolstering dollar liquidity within the domestic market.

By promoting easier pathways for overseas investments, the RBI is taking significant steps to strengthen the Indian currency and bolster overall economic stability.

Additional Measures to Enhance Foreign Inflows

The RBI has also initiated support measures for external commercial borrowings (ECBs), particularly for public sector undertakings. This allows Indian organisations to procure funds from international markets more readily, thereby introducing further foreign currency into the system during periods of tightened external financing conditions.

Another noteworthy measure pertains to Foreign Currency Non-Resident Bank (FCNR(B)) deposits. Banks are now able to raise these deposits over a period of three to five years while receiving assistance with hedging costs, facilitating attractive investment opportunities for Indians abroad. Historically, such schemes have proven effective during times of currency volatility, indicating the RBI’s strategic response to ongoing financial challenges.

Finally, the RBI has reinstated a nine-month period for the realisation of export proceeds. By extending this timeframe, the central bank aims to assist exporters in managing their cash flows more effectively, thus enhancing the overall inflow of foreign exchange into the economy.

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